Professional Documents
Culture Documents
Appendix 4E and Annual Report FY20
Appendix 4E and Annual Report FY20
Dividends
* The net tangible asset (NTA) backing per ordinary share of 28.8 cents presented above is inclusive
of right-of-use assets and liabilities.
Audit/Review Status
Financial Statements
Page
Directors’ Report 7
Directors’ Declaration 66
Shareholder Information 72
Corporate Directory 74
Dear Shareholders,
Flood, fire, plague. Since our company was first listed on the stock exchange in 2005, I have written thirty-one
shareholder letters to go with our interim and final reports. Along the way there have been many surprises, but never
before have we seen such startling change as in the year ended 30 June 2020.
The good news is that the COVID-19 disruption, while a severe test of our operations, has allowed the true strength
of our business model to shine through and highlighted the ability of our team to cope with and respond positively to
challenges. We have emerged from a lengthy shutdown with a business that has rebounded to higher levels of
revenue and profit than ever before. In addition, the rationalisation and consolidation of the dental industry have
been greatly accelerated, with many weaker players simply leaving the market. I'll address the details later in this
letter.
Our revenue was greatly reduced during the period of maximum economic restriction. Level 2 and Level 3
restrictions applied from 23 March to 11 May 2020. During this time many of our practices were closed and the
activities at many others were sharply limited. Subsequent to 11 May our revenue rebounded sharply, with the
month of June 2020 delivering our highest monthly revenue ever, by a big margin.
• Revenue (OTC) down 3% to $57.1 million • Revenue (Statutory) down 3% to $40.7 million
• EBITDA up 22% to $16.2 million • NPBT down 9% to $9.8 million
• NPAT down 8% to $7.1 million • Earnings Per Share down 8% to 30.2c
• Full year dividend up 3% to 25.75c • Net Bank debt down 3% to $8.3 million
40
$M
20
0
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Revenue (OTC) ($m) 30.7 35.7 45.9 48.5 43.3 53.2 51.4 51.0 55.8 58.9 57.1
Less amount retained by self-
6.8 6.9 9.2 12.3 11.5 16.6 14.9 14.8 16.5 17.0 16.4
employed Dentists ($m)
Revenue (Statutory) ($m) 23.9 28.7 36.7 36.2 31.8 36.6 36.5 36.2 39.3 42.0 40.7
The results for the quarter, the second half, and the full year mask the fact that we've been through a terrible spell
which extended over several weeks, followed by an extremely positive period which lasted right to the end of the
financial year and has continued without pause through the end of July.
On a quarterly basis, revenue in 2020 exceeded revenue in the previous year in each of the first three quarters. Over
the first three quarters, revenue was up by more than 7% over the previous year. All of the COVID-19 interruption
was captured within the final quarter of the year, delivering the negative year-on-year changes shown below.
6
$M
0
April May June July
FY'19 FY'20 FY'21
3
EBITDA FY'19 vs FY'20 Jul 19 vs Jul 20 (est)
2
$M
-1
April May June July (est)
FY'19 FY'20 FY'21
Dividend
The final dividend has been set at 12.5c per share, equal to the previous year's final dividend. This brings the full year
dividend payout to 25.75c per share, an increase of 3.0% on the previous year.
Many other ASX-listed companies have suspended the payment of dividends in response to COVID-19, and some have
even withdrawn previously announced dividends. In contrast, our strong finish to the financial year validates our
board’s decision to honour our commitment to treat our shareholders as our partners. At a time when many investors
have been severely impacted by COVID-19, we are delighted that we are able to provide the safe and strong returns
upon which we have built our relationship with shareholders.
As I have mentioned in previous shareholder letters, the board of 1300SMILES regards the dividend as not only the
reward to which shareholders are entitled, but also as a key means of communicating with shareholders about the
state of our business. While the COVID-19 pandemic had a negative impact on many of our key metrics in the 2020
year, we believe that the stresses imposed on our business have highlighted some of our real strengths. More
importantly, we believe that the impact of the pandemic on the dental industry has put us in a stronger competitive
position, something I will address further below.
EPS DPS
Earnings Per Share / Dividend Per Share
40
30
Cents per Share
20
10
0
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Long term shareholders know that we have always tried to make our company's business as resilient as possible. We
never know what's coming next, so we just aim to make sure that our business is sturdy enough to resist known and
unknown challenges.
Sometimes it seems that as we get better at reinforcing our defences, the challenges get bigger and come faster.
In 2008 we saw a big collapse in the share market. This didn't have any direct effect on dentistry, but it made
consumers nervous. People sometimes consider their dental health to be discretionary, and we felt this in our
revenue. This slowed our progress, briefly, but we came back stronger than ever.
In 2013 the commonwealth government abruptly cancelled the Chronic Disease Dental Scheme (CDDS). Without
warning a billion dollars (about 20% of the annual revenue of the ENTIRE Australian dental industry) disappeared
overnight. That led to the only time we have had to decrease our dividend. Our full-year dividend for the 2014 year
was reduced to 14.5c per share. Since then our dividend has grown by 78% to the current year's 25.75c.
In 2018 Queensland suffered floods greater than any seen in the modern era. All of our practices were sensibly located
above the high water, but for a while it didn't make any difference because no one could actually get to several of
these sites for a week or more. Many of our dentists and staff suffered real personal losses, but they got straight back
on the job, and our business powered through. Looking back over our accounts, the floods had only a minor effect on
our results.
So who saw 2020 coming? We all know that something is always headed our way, and I'm proud to say we were as
ready as we could have been. Fortunately, our practices were out of the way of the terrible summer bushfires in
southern Australia. All our practices were closed for a few to several weeks between March and May 2020 in response
1300SMILES Limited ANNUAL REPORT 2020 3
Letter from the Managing Director
30 June 2020
to COVID-19. By June, though, all our facilities were open, and our revenue in the last month of the financial year was
significantly up on June 2019. This trend has continued through July 2020.
I take my hat off to our dedicated and resilient staff and dentists who proved once again that they're willing to dig in
and get the job done, no matter what obstacles are thrown at us by the economy, the government, or the natural
world. We have no idea what challenge is coming next, but our business has been tested in many ways and our terrific
team has proved equal to the challenge every time.
I believe that the events of the past few months have helped to improve our competitive position considerably.
First of all, our facilities inspire confidence in our patients. Our practices are bright and clean, obviously sanitised and
disinfected to the highest standard. Our scheduling systems mean that patients spend minimal time in our waiting
areas. Our equipment is modern and professionally maintained. We were equipped to prevent disease transmission
long before COVID-19 came along, and the presentation of our facilities is reassuring to patients.
Since June we have enjoyed an unprecedented flow of both returning and new patients. Why so many new ones? I
speculate that the presentation of our facilities gives people comfort. I speculate that many people who have
previously not prioritised their dental and overall health, have reconsidered their life priorities. I also speculate but
cannot yet measure another effect of COVID-19: it appears that a number of older dentists have kept their practices
closed while they consider whether to resume operations at all.
Many sole practitioners and small partnerships have simply not re-opened. One has to imagine that older dentists,
especially those with other elevated risk factors for whom COVID-19 exposure is more dangerous, or who are no longer
up to maintaining older fitouts to current disinfection standards, simply won't return to practice. I see this delivering
opportunities to a business like ours, which is designed to allow old and young dentists alike to do what they are good
at—dentistry—and leave the management of the business to us.
Along with the flood of new patients, we have also enjoyed an unprecedented stream of applications from qualified
dentists wishing to join our practices. From our discussions with these applicants, the big motivations are our proven
ability to generate a flow of patients and the better career path and lifestyle available within 1300SMILES than as an
associate in a one or two dentist practice.
COVID-19 exposure
As of this writing, the serious COVID-19 outbreaks in Australia are concentrated in high-density, low-income centres
in Melbourne and to a lesser degree in Sydney. We have no company facilities located in or near any of the current
hot spots. The overwhelming majority of our patients, dentists, and staff live in the sort of suburban settings that have
so far avoided the worst of the pandemic.
In addition, most of our facilities are located in Queensland. As a state, Queensland has performed well in response
to the pandemic. Queensland has a higher proportion of its population located outside its capital city than any other
state. As we've seen so far, the structure and design of suburban and regional centres make it easier to resist
widespread infection.
None of this adds up to a guarantee that the pandemic won't flare up further in ways that affect our business, but as
the governments of Australia and Queensland continue to learn from mistakes made elsewhere, we have some cause
for cautious optimism. At the practice level we remain fierce about enforcing best practice infection suppression;
these practices are updated as new and better information comes to hand.
We absolutely will not hesitate to restrict any operations where there is a threat to our patients, staff, or dentists.
Starting with the interim report for the current year we have been required to adopt the change to AASB 16 Leases.
This has no effect on our cash flow or any other practical aspect of our business, but it has a significant effect on the
way our accounts are presented. The major effect is that of decreasing our rental expense (for accounting purposes
only) and increasing our lease depreciation expense and finance costs.
These changes in turn affect the calculation of EBITDA, our Earnings Before Interest, Tax, Depreciation, and
Amortisation. On identical real results, our EBITDA is now higher than it was before AASB-16 Leases. For the purpose
of enabling comparison to previous reports, we provide the following comparison of our AASB-16 Leases results (as
used in these accounts) to our pre-AASB-16 Leases results (as used in accounts prior to the 2020 year).
Practice acquisitions
During the 2020 year we acquired established multi-dentists practices in Gatton and Laidley both in
Queensland. While none of these acquired practices has a material effect on our results, all made positive
contributions to our revenue and profit for the year, and all meet our operating efficiency standards. We disposed of
two smaller operations during the year. Given the scale of our business, such sales are a normal part of our business
as we continue to refine our operations and our allocation of resources.
Thanks
Finally, as always, I note that our business only exists thanks to the support of our many patients throughout Australia.
This support in turn results from the quality care provided by our dentists, dental support staff, and practice and
business management teams – thank you to all of you; my admiration for your resilience, professionalism and care
has grown even more this year. Finally, I thank our shareholders for your continuing support.
The dentists who use the company's services range from new graduates to experienced dental professionals.
Several dentists who use the company's services have special interests and experience in such areas as
endodontics, oral surgery, implants and periodontics and cross-refer work to other dentists who use the
company's services.
The company provides comprehensive services in the areas of marketing, administration, billing and
collections, and facilities certification and licensing to all participating dentists. The company also provides all
support staff, equipment and facilities, and sources all consumable goods using the buying power which
derives from such a large group of dental businesses.
FUTURE DEVELOPMENTS
The company's core objective is to continue to increase profits and shareholder returns while providing a
rewarding environment for our staff and the dentists using our facilities.
The company aims to achieve a combination of organic growth in its existing locations and the addition of new
practice management facilities.
The key drivers for future growth of the company are:
• Increasing profits by attracting more dentists to our existing facilities and expanding those facilities
which are already at full capacity;
• Assisting dentists who already practice within the 1300SMILES system to increase their turnover and
income through benchmarking, training, and mentoring;
• Establishing new practices in existing and new regions (greenfield sites);
DENTIST ENQUIRIES
Owners of dental practices who are interested in unlocking the goodwill value of their businesses (or freeing
themselves from all the management hassles) are invited to contact Dr. Daryl Holmes, Managing Director,
on +61 (7) 4720 1300 or md@1300SMILES.com.au.
Qualified dentists who wish to know more about joining one of our established facilities are encouraged to
contact Dr. Holmes directly or email dentalcareers@1300smiles.com.au or visit our website
www.1300smiles.com.au/careers.
Your directors present their report on the consolidated entity consisting of 1300SMILES Limited and the
entities it controlled at the end of, or during, the year ended 30 June 2020. Throughout the report, the
consolidated entity is referred to as the group.
Directors
The following persons were Directors of 1300SMILES Limited during the whole of the financial year and up to
the date of this report:
Robert Jones (Non-Executive Chairman)
Dr Daryl Holmes (Managing Director)
Jason Smith (Non-Executive Director)
Evonne Collier (Non-Executive Director) (Resigned 6 April 2020)
Company secretary
The following person was company secretary of 1300SMILES Limited during the whole of the financial year
and up to the date of this report:
Patrick Wyatt
Principal activities
During the financial year the principal continuing activity of the group was to provide dental and management
services in Australia.
Interim dividend for the half year ended 31 December 2019 of 13.25 cents
(2018: 12.5 cents) per ordinary share paid on 27 March 2020 fully franked based on a
tax rate of 27.5% 3,137 2,960
6,097 5,801
Since the end of the financial year, the Directors have recommended the payment of a final ordinary dividend
of 12.5 cents ($2,959,798) to be paid on 11 September 2020 out of retained earnings at 30 June 2020.
Review of operations
The profit for the group after providing for income tax amounted to $7,145,000 (30 June 2019: $7,772,000).
Detailed comments on operations up to the date of this report are included separately in the Annual
Report. Please refer to the Letter from the Managing Director on pages 1 to 6 of this annual report.
Bank facilities
On 27 June 2019, the group entered into a new multi-option loan facility agreement with the Commonwealth
Bank of Australia. The loan facility was settled on 2 August 2019 with transfer of securities occurring on this
date. The details of the loan facility include:
• Total loan facility is for $25 million and a $25 million accordion facility
• Interest terms vary according to the net leverage ratio, with the current rate at 2.81%
• Security for the loan facility consists of first ranking general security interest over all assets and
undertakings of 1300SMILES Ltd and 1300SMILES (BOH Dental) Pty Ltd, and a cross guarantee and
indemnity between 1300SMILES Ltd and 1300SMILES (BOH Dental) Pty Ltd
• Debt covenants include:
o Debt leverage ratio not greater than 2.75x
o Fixed interest charge cover ratio must not fall below 1.80x
• The termination date of the loan facility is 2 August 2022
Acquisitions
The group acquired two dental practices in Gatton and Laidley (Queensland) on 23 December 2019.
Although the pandemic materially affected our April & May revenue and profitability, our post COVID recovery
has been extremely positive and profound.
A fully franked final dividend of 12.5 cents per share has been declared and is payable on 11 September 2020.
Apart from the matters mentioned above, no other matter or circumstance has arisen since 30 June 2020 that
has significantly affected, or may significantly affect the group's operations, the results of those operations,
or the group's state of affairs in future financial years.
Information on directors
Robert Jones
Non-Executive Chairman
MAICD
Robert is considered an Independent Director by the Board. Robert was appointed Chairman on 25 September
2007.
Other current Directorships: Hermit Park Bus Service Pty Ltd (unlisted)
Former Directorships (in the last 3 years): Mater Health Services North QLD Ltd (unlisted)
Special responsibilities: Nil
Interest in shares: 37,521 ordinary shares in 1300SMILES Limited
Interests in options: None
For 12 years he pioneered and perfected a range of innovative management and marketing techniques for his
dentistry business, in the process transforming a cottage industry into a polished and professional customer
service experience, backed up by affordable high quality dental health care.
1300SMILES Limited successfully listed on the ASX in March 2005. It now operates practices in the ten major
population centres in Queensland and more recently in New South Wales.
Dr Holmes has been a member of the Australian Dental Association (ADA) for 33 years.
Dr Holmes has been a Director of the Cowboys Leagues Club for the past 18 years, and in May 2014 he was
elected Chairman.
Dr Holmes is not considered to be an Independent Director by the Board given his role as Managing Director.
Jason Smith
Non-Executive Director
Jason is author of a recent best-selling book titled “Outside In Downside Up Leadership” and was listed as the
No.2 Top Franchise Executive in Australia for 2019. He has also previously published the international best
seller “Get Yourself Back In Motion” – a physiotherapist’s secrets to pain relief and optimal health. He is a
regular contributor and presenter on health & wellness, leadership and business-related subjects on
television, radio, print and online channels. Jason has demonstrated commitment to those less fortunate
through his work with numerous humanitarian welfare organisations and community groups.
In addition, Jason is a member of the Franchise Council of Australia, the Australian Physiotherapy Association,
various CEO groups and special interest business forums. He is highly regarded for his contribution and
advocacy in leadership development, health promotion, boardroom strategy and innovative business. Jason
is based in Melbourne, Victoria.
Jason is considered an Independent Director by the Board. Jason was appointed Director of the Board on 23
November 2017.
Evonne has extensive board and executive experience with ASX and large shareholder based businesses.
She currently holds Independent directorships with Think Childcare (ASX:TNK); Motorama Automotive Group
and BML (Brisbane Markets).
Evonne holds undergraduate and postgraduate business and finance qualifications (BA, MBus,
GradCertAppFin), is a certified scrum master and a graduate member of the AICD.
Evonne is considered an Independent Director by the Board. Evonne was appointed Director of the Board on
23 November 2017 and resigned on 6 April 2020.
Meetings of directors
The number of meetings of the company’s Board of Directors and Board Committee held during the year
ended 30 June 2020, and the number of meetings attended by each Director were:
Attended Held
Robert Jones 11 11
Dr Daryl Holmes 11 11
Jason Smith 11 11
Evonne Collier* 8 8
The Directors present the 1300SMILES Limited 2020 remuneration report, outlining key aspects of our
remuneration policy and framework, and remuneration awarded this year.
This includes responsibility for determining and reviewing remuneration arrangements for its Directors and
executives. The performance of the group and company depends on the quality of its Directors and executives.
The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel.
The Board is responsible for determining remuneration packages applicable to the Executive Director. The
Executive Director determines the remuneration packages for the senior executives of the company in
accordance with compensation guidelines set by the Board.
The Board assesses the appropriateness of the nature and amount of remuneration of Directors on a periodic
basis by reference to relevant employment market conditions with the overall objective of ensuring maximum
stakeholder benefit from the retention of a high quality board and executive team. It is intended that the
manner of payments chosen will be optimal for the recipient without creating undue cost for the company.
Further details on the remuneration of Directors and executives are set out in this Remuneration Report.
In accordance with best practice corporate governance, the structure of Non-Executive Directors and
executive remunerations are separate.
The 2016 review encompassed feedback on the chair and individual Non-Executive Directors as well as
consideration of board succession planning, diversity and breadth and sufficiency of skills represented on the
Board. At that time, the results confirmed that the Board continues to function in an appropriate manner.
The Board also carries out informal performance monitoring sessions at each in-person meeting of the Board.
• A review of Board skills and experience was undertaken during the 2018 financial year, and the
collective skills and experience of the current Board and skills the Board is looking to achieve in its
membership are in the areas of, but not limited to industry experience and the growth, acquisition and
management of independent operating units;
• Industry experience: approved products – substantial experience in the global supply of approved
products;
• Executive leadership experience in global communities – substantial experience in senior executive
roles for businesses across multiple global locations;
• Strategy – substantial experience in the development and implementation of strategic plans to deliver
investor returns over time;
• Capital management – substantial experience in capital management strategies, including partnerships
and capital raisings;
• Financial and risk management – expertise and experience in financial accounting and reporting,
internal controls and financial disclosure;
• Human resources – substantial experience in oversight of remuneration, incentives, equity programs,
benefits and employment contracts; and
• Governance – substantial experience in public entity disclosure, management oversight and inquiry,
listing rules and compliance.
ASX listing rules requires that the aggregate Non-Executive Directors’ remuneration shall be determined
periodically by a general meeting.
The company has resolved that the maximum aggregate amount of Directors’ fees (which does not include
remuneration of Executive Directors and other non-director services provided by Directors) is $150,000 per
annum. Non-Executive Directors are entitled to be reimbursed for their reasonable expenses incurred in
connection with the affairs of the company. A Director may also be remunerated as determined by the
Directors if that Director performs additional or special duties for the company. A former Director may also
receive a retirement benefit of an amount determined by the Directors in recognition of past services, subject
to the ASX Listing Rules and the Corporations Act 2001.
The remuneration of Non-Executive Directors is detailed in part (h) of this remuneration report.
Executive Directors and senior executives may receive bonuses at the discretion of the Board on the
achievement of specific goals relating to the performance of the company.
Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed
annually by the Board of Directors, based on individual and overall performance of the entity and comparable
market remuneration.
Executive Directors
Dr Daryl Holmes
2020 83,211 7,905 91,115
2019 82,557 7,843 90,400
Term of agreement:
The agreement may be terminated by either the company or Dr Holmes after two years by giving not less than
three months’ notice or by the company in the event of material breach of misconduct by Dr Holmes.
Details:
Dr Holmes' remuneration comprises a salary of $90,400 inclusive of statutory superannuation entitlements
and is reviewable on a yearly basis. In addition, Dr Holmes is entitled to be reimbursed for reasonable expenses
incurred by him in carrying out his obligations under the agreement. Dr Holmes also provides dental services
pursuant to a Dental Service Agreement on normal commercial terms and conditions.
The Directors believe that the remuneration is appropriate for the duties allocated to Dr Holmes, the size of
the Group’s business, the industry in which the Group operates, and that Dr Holmes also receives income from
a Dental Service Agreement with the company. There are no pay-outs upon resignation or termination, outside
of industrial regulations.
Details:
Natalie’s remuneration comprises a salary of $164,250 inclusive of statutory superannuation entitlements and
is reviewable on a yearly basis. In addition, Natalie is entitled to be reimbursed for reasonable expenses
incurred by her in carrying out her obligations under the agreement. There are no pay-outs upon resignation
or termination, outside of industrial regulations.
Details:
Roman’s remuneration comprises a salary of $100,000 inclusive of statutory superannuation entitlements and
is reviewable on a yearly basis. There are no pay-outs upon resignation or termination, outside of industrial
regulations.
Key management personnel have no entitlement to termination payments in the event of removal for
misconduct.
Fees are reviewed annually by the Board taking into account comparable roles and market data.
Base fees 30 June 2020
Chair $40,000
Other Non-Executive Directors* $30,000
*Non-executive directors have waived their fees for 6 months from April to September 2020.
Share-based compensation
Issue of shares
No shares were issued to Directors and other key management personnel as part of compensation during the
year ended 30 June 2020 (2019: nil).
Options
There were no options issued to Directors and other key management personnel as part of compensation that
were outstanding as at 30 June 2020 (2019: nil).
There were no options granted to or exercised by Directors and other key management personnel as part of
compensation during the year ended 30 June 2020 (2019: nil).
Shareholdings
The number of shares in the parent entity held during the financial year by each Director and other members
of key management personnel of the group, including their personally related parties, is set out below:
The company received revenue for dental management services from Golden Arch (Qld) Pty Ltd for services
provided under a Dental Service Agreement. Consulting revenue of $320,000 consists of services provided to
related parties of the Group.
Included in lease liability is $996,851 committed to Golden Arch Pty Ltd over a period of 5 years, and $426,535
committed to Three Island Pty Ltd over a period of 6 years, and $609,156 committed to Ashbourne Park Pty
Limited over a period of 5 years.
Aggregate amounts of each of the above types of other transactions with key management personnel of
1300SMILES Limited:
2020 2019
$ $
Received for goods and services:
Dental management services 45,283 60,383
Payment for other expenses:
Rental expense paid to related parties 498,410 829,170
Fixed remuneration
Fixed remuneration includes base salaries received, payments made to superannuation funds, the taxable
value of non-monetary benefits received and any once-off payments such as sign on bonuses or termination
benefits, see page 15 for details. Fixed remuneration excludes any accruals of annual or long-service leave.
There were no shares of 1300SMILES Limited issued on the exercise of options during the year ended
30 June 2020 (2019: nil).
Diversity
The Company values diversity and recognizes the benefits it can bring to the organisation’s ability to achieve
its goals. Diversity can lead to a competitive advantage through broadening the talent pool for recruitment of
high quality employees, by encouraging innovation and improving a corporation’s image and reputation.
Accordingly, the Group is committed to promoting diversity within the organisation and has adopted a formal
policy outlining the Group’s diversity objectives. It includes requirements for the Board to establish
measurable objectives for achieving diversity and for the Board to annually assess the objectives, and the
Group’s progress in achieving these objectives.
With respect to gender diversity, the Group has set the following objectives:
1. aim to increase the number of women on the Board of Directors as vacancies arise and circumstances
permit;
2. aim to increase number of women who hold senior executive positions as vacancies arise and
circumstances permit; and
3. ensure the opportunity exists for equal gender participation in all levels of professional development
programs.
The following table reports the Group’s progress towards achieving its gender diversity objectives for points
one and two above. In regard to point three, the Group did ensure that an equal opportunity existed for gender
participation in all levels of professional development programs during the year. For completeness, as at
30 June 2020 the Company had 337 employees, of which 306 (91%) were female.
The Board has delegated the responsibility for reviewing and reporting on diversity, specifically gender
diversity, to the Human Resources Manager.
Environmental regulation
The group is not subject to any significant environmental regulation under Australian Commonwealth or State
law.
The company has not, during or since the end of the financial year, except to the extent permitted by law,
indemnified or agreed to indemnify an officer or auditor of the company or any related entity against a liability
incurred by the auditor. The indemnity is limited to liabilities arising out of their duties as officer or auditor of
1300SMILES Limited, and legal costs incurred in defending an action for said liabilities but only to the extent
that the liability arises out of conduct in good faith.
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for
the purpose of taking responsibility on behalf of the company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of the company with leave of the Court under
section 237 of the Corporations Act 2001.
Non-audit services
The company may decide to employ the auditor on assignments additional to their statutory audit duties
where the auditor’s expertise and experience with the company are important.
Details of the amounts paid or payable to the auditor (PKF Brisbane Audit or related parties) for non-audit
services provided during the year are set out below.
The Board of Directors has considered the position and are satisfied that the provision of the non-audit
services is compatible with the general standard of independence for auditors imposed by the Corporations
Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below,
did not compromise the auditor independence requirements of the Corporations Act 2001 for the following
reasons:
• all non-audit services have been reviewed by the Board of Directors to ensure they do not impact the
impartiality and objectivity of the auditor;
• none of the services undermine the general principles relating to auditor independence as set out in
APES 110 Code of Ethics for Professional Accountants.
During the year the following fees were paid or payable for non-audit services provided by the auditor of the
parent entity, its related practices and non-related audit firms:
2020 2019
$ $
PKF Brisbane
Tax compliance services 24,120 15,300
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act
2001 is set out on page 22.
Rounding of amounts
The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of
amounts in the Directors’ report. Amounts in the Directors’ Report have been rounded off in accordance with
the Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar.
Dr Daryl Holmes
Managing Director
Townsville
11 August 2020
I declare that, to the best of my knowledge and belief, during the year ended 30 June 2020, there have
been no contraventions of:
(a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
SHAUN LINDEMANN
PARTNER
1300SMILES Limited and the Board are committed to achieving and demonstrating the highest standards of
corporate governance. 1300SMILES Limited has reviewed its corporate governance practices against the
Corporate Governance Principles and Recommendations (4th edition) published by the ASX Corporate
Governance Council.
The current corporate governance statement was adopted by the Board effective 1 July 2016. A description
of the group's current corporate governance practices is set out in the group's corporate governance
statement which can be viewed at https://1300smiles.com.au/corp-governance/
Consolidated
2020 2019
Note $’000 $’000
Revenue
Services revenue 5 39,802 40,313
Other income 6 897 1,639
Total revenue 40,699 41,952
Expenses
Consumables, lab fees and other supplies (5,153) (4,082)
Employee benefits expense 7 (14,203) (15,909)
Depreciation and amortisation expense 7 (5,507) (2,268)
Property expenses (522) (3,304)
Operating expenses (4,063) (4,565)
Corporate and administrative expenses 7 (581) (808)
Finance costs 7 (884) (229)
Total expenses (30,913) (31,165)
Cents Cents
Earnings per share
Basic earnings per share 9 30.2 32.8
Diluted earnings per share 9 30.2 32.8
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Consolidated
2020 2019
Note $’000 $’000
ASSETS
Current Assets
Cash and cash equivalents 11 6,681 634
Trade receivables 12 2,197 1,839
Inventories 257 20
Other assets 13 1,792 1,033
Current tax assets 8 - 71
Loans receivable 14 271 1,655
Financial assets - investments 15 259 -
Total current assets 11,457 5,252
Non-current Assets
Loans receivable 14 5,551 3,538
Financial assets - investments 15 - 208
Property, plant and equipment 16 12,767 13,264
Right-of-use asset 17 8,447 -
Investment property 18 1,625 1,625
Intangible assets 19 34,308 33,482
Total non-current assets 62,698 52,117
Total Assets 74,155 57,369
LIABILITIES
Current Liabilities
Trade and other payables 21 4,300 3,803
Provisions 22 838 630
Current tax liabilities 8 1,222 -
Other liabilities 23 1,315 634
Lease liabilities 17 2,865 -
Total current liabilities 10,540 5,067
Non-current Liabilities
Trade and other payables 21 401 458
Deferred tax liabilities 20 360 541
Provisions 22 444 427
Other liabilities 23 260 1,591
Loans payable 24 15,000 9,200
Lease liabilities 17 6,017 -
Total non-current liabilities 22,482 12,217
Total Liabilities 33,022 17,284
Net Assets 41,133 40,085
EQUITY
Contributed equity 25 15,501 15,501
Retained profits 25,632 24,584
Total Equity 41,133 40,085
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
Contributed Retained
Total equity
equity profits
Note $’000 $’000 $’000
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Consolidated
2020 2019
Note $’000 $’000
Cash flows from operating activities
Receipts from customers (inclusive of GST) 41,513 43,791
Payments to suppliers and employees (inclusive of GST) (29,114) (34,167)
12,399 9,624
Cash and cash equivalents at the beginning of the financial year 634 2,296
Cash and cash equivalents at the end of the financial year 11 6,681 634
The above consolidated statement of changes of cash flows should be read in conjunction with the accompanying notes.
The financial report of 1300SMILES Limited and its wholly owned subsidiaries (together, the group) was
authorised for issue in accordance with a resolution of Directors on 11 August 2020. The Directors have the
power to amend and reissue the financial report. 1300SMILES Limited is a for profit company limited by
shares, incorporated and domiciled in Australia, whose shares are publicly traded on the Australian Stock
Exchange. The nature of the operations and principal activities of the group are described in the Directors’
Report. The financial report is presented in Australian dollars.
This note provides a list of all significant accounting policies adopted in the preparation of these consolidated
financial statements. These policies have been consistently applied to all the years presented, unless
otherwise stated. The financial statements are for the group consisting of 1300SMILES Limited and its
subsidiaries.
Except for cash flow information, the financial statements have been prepared on an accruals basis and are
based on historical costs, modified, where applicable, by the measurement at fair value of selected non-
current assets, financial assets and financial liabilities.
Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act
2001. 1300SMILES Limited is a for-profit entity for the purpose of preparing the financial statements.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been
early adopted.
The following Accounting Standards and Interpretations are most relevant to the group:
AASB 16 ‘Leases’ replaces AASB 117 ‘Leases’ along with three Interpretations.
The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related
lease liability in connection with all former operating leases except for those identified as low-value or having
a remaining lease term of less than 12 months from the date of initial application. The new Standard has
been applied using the modified retrospective approach. Prior periods have not been restated.
For contracts in place at the date of initial application, the Group has elected to apply the definition of a lease
from AASB 117 and has not applied AASB 16 to arrangements that were previously not identified as a lease
under AASB 117.
The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for
operating leases in existence at the date of initial application of AASB 16, being 1 July 2019. At this date, the
Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted
for any prepaid or accrued lease payments that existed at the date of transition. As a result, there is no
adjustment to retained earnings.
Instead of performing an impairment review on the right-of-use assets at the date of initial application, the
Group has relied on its historic assessment as to whether leases were onerous immediately before the date
of initial application of AASB 16.
On transition, for leases previously accounted for as operating leases with a remaining lease term of less than
12 months and for leases of low-value assets the Group has applied the optional exemptions to not recognise
right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease
term.
The following table presents the impact of the application of AASB 16 on the opening balance sheet:
On transition to AASB 16 the weighted average incremental borrowing rate applied to lease liabilities
recognised under AASB 16 was 2.82%. Lease liabilities totalled $11.0 million as of 1 July 2019 and comprised
of lease liabilities recognised in respect of 31 operating leases in effect as of 1 July 2019.
Right-of-use assets totalled $11.0 million as of 1 July 2019 and comprised of assets corresponding to the
newly recognised lease liabilities.
The following is a reconciliation of total operating lease commitments at 30 June 2019 (as disclosed in the
financial statements to 30 June 2019) to the lease liabilities recognised at 1 July 2019:
$’000
Total operating lease commitments disclosed at 30 June 2019 14,019
Recognition exemptions:
Leases with remaining lease term of less than 12 months (434)
Other adjustments relating to commitment disclosure (3,418)
Operating lease liabilities before discounting 10,167
Discount using incremental borrowing rate (615)
Operating lease liabilities 9,552
Reasonably certain extension options 1,476
The Group has applied AASB 16 using the modified retrospective approach and therefore comparative
information has not been restated. This means comparative information is still reported under AASB 117.
Principles of consolidation
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the group has control. The group
controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are
deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the group (refer to
note 33).
Intercompany transactions, balances and unrealised gains on transactions between group companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated
income statement, statement of comprehensive income, statement of changes in equity and balance sheet
respectively.
Operating segments
Operating segments are presented using the ‘management approach’, where the information presented is
on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’) – being
the Board of Directors. The CODM is responsible for the allocation of resources to operating segments and
assessing their performance.
Revenue recognition
Revenue is recognised on the following basis:
Rendering of services
Revenue from the rendering of dental services over the counter is recognised at a point in time, upon the
performance of the service by the dentist. Patients are billed at the time of service delivery and revenue
recognised. Service fees from contract dentists is recognised upon the performance of services. There is no
major judgement required with there being one performance obligation being the rendering of services.
Interest revenue
Interest revenue is calculated by applying the effective interest rate to the gross carrying amount of a
financial asset. Interest revenue is derived from loans receivable and cash at bank.
Other revenue
Other revenue is recognised when performance obligations have been achieved in accordance with contracts
with customers.
Income tax
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income
based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
the end of the reporting period in the countries where the company’s subsidiaries and associates operate
and generate taxable income. Management periodically evaluates positions taken in tax returns with respect
to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill.
Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of the transaction affects neither accounting
nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been
enacted or substantially enacted by the end of the reporting period and are expected to apply when the
related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise
those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax
assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either
to settle on a net basis, or to realise the asset and settle the liability simultaneously.
1300SMILES Limited and its wholly-owned Australian controlled entity have implemented the tax
consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax
assets and liabilities of these entities are set off in the consolidated financial statements.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised
in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed
in the group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be
realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted
from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other
assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in the group’s normal operating
cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting
period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after
the reporting period. All other liabilities are classified as non-current.
Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether
equity instruments or other assets are acquired.
The consideration transferred for the acquisition of a dental practice comprises the:
• fair values of the assets transferred
• liabilities incurred to the former owners of the acquired business
• equity interests issued by the group
• fair value of any asset or liability resulting from a contingent consideration arrangement, and
• fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are,
with limited exceptions, measured initially at their fair values at the acquisition date. The group recognises
any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value
or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are
discounted to their present value as at the date of exchange. The discount rate used is the entity’s
incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial
liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s
previously held equity interest in the acquire is remeasured to fair value at the acquisition date. Any gains
or losses arising from such remeasurement are recognised in profit or loss.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts
the provisional amounts recognised and also recognises additional assets or liabilities during the
measurement period, based on new information obtained about the facts and circumstances that existed at
the acquisition date. The measurement period ends on either the earlier of (i) 12 months from the date of
the acquisition or (ii) when the acquirer receives all the information possible to determine fair value.
Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are
tested annually for impairment, or more frequently if events or changes in circumstances indicate that they
might be impaired. Other assets are tested for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount
by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher
of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are
largely independent of the cash inflows from other assets or groups of assets (cash-generating units).
Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of
the impairment at the end of each reporting period.
Trade receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using
the effective interest method, less any provision for impairment, in accordance with the expected credit
losses requirements of AASB 9. The group applies the AASB 9 simplified approach to recognising expected
credit losses which uses a lifetime expected loss allowance for all trade receivables. No provision for
impairment was determined by the Board at balance date.
Inventories
Inventories are measured at the lower of cost and net realisable value.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired
or have been transferred and the group has transferred substantially all the risks and rewards of ownership.
Where there is no reasonable expectation of recovering part or all of a financial asset, its carrying value is
written off.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month
expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit
losses that is attributable to a default event that is possible within the next 12 months. Where a financial
asset has become impaired or where it is determined that credit risk has increased significantly, the loss
allowance is based on the asset’s lifetime expected credit losses. The amount of expected credit loss
recognised is measured on the basis or the probability weighted present value of anticipated cash shortfalls
over the life of the instrument discounted at the original effective interest rate.
For financial assets mandatorily measured at fair value through other comprehensive income, the loss
allowance is recognised in other comprehensive income with a corresponding expense through profit or loss.
In all other cases, the loss allowance reduced the asset’s carrying value with a corresponding expense through
profit or loss.
Depreciation is calculated using either the diminishing value or prime cost method to allocate the cost of
property, plant and equipment, net of their residual values, over their estimated useful lives. Depreciation
on leasehold improvements is calculated using the straight line method to allocate the cost of the asset over
the shorter period of the life of the asset or the lease term as follows:
Plant and equipment 3 to 15 years
Leasehold improvements 3 to 15 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each
reporting date.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic
benefit to the group. Gains and losses between the carrying amount and the disposal proceeds are taken to
profit or loss.
Investment property
Investment properties are held for long-term rental yields or appreciation in sale value. They are carried at
fair value in accordance with AASB 140. Fair value is determined using a market approach using recent
observable market data for similar properties. Changes in fair value are presented in profit or loss as part of
other income.
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured
at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease
payments made at or before the commencement date net of any lease incentives received, any initial direct
costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be
incurred for dismantling and removing the underlying asset, and restoring the site of asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the
estimated useful life of the asset, whichever is the shorter. Where the group expects to obtain ownership of
the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of-use
assets are subject to impairment or adjusted for any re-measurement of lease liabilities.
The group has elected not to recognise a right-of-use assets and corresponding liability for short-term leases
with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed
to profit or loss as incurred.
Intangible assets
Goodwill
Goodwill on acquisitions of dental practices is included in intangible assets. Goodwill is not amortised but it
is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it
might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the
disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made
to those cash-generating units or groups of cash-generating units that are expected to benefit from the
business combination in which the goodwill arose. The units or groups of units are identified at the lowest
level at which goodwill is monitored for internal management purposes.
Intellectual property
Intellectual property has a finite useful life and is carried at cost less accumulated amortisation and
impairment losses. Amortisation is calculated using the straight-line method to allocate cost of the
intellectual property over the estimated useful life of the intellectual property which is 10-20 years.
Software
Costs associated with maintaining software programmes are recognised as an expense as incurred.
Development costs that are directly attributable to the design and testing of identifiable and unique software
products controlled by the group are recognised as intangible assets when the following criteria are met:
• It is technically feasible to complete the software so that it will be available for use
• Management intends to complete the software and use or sell it
• There is an ability to use or sell the software
• It can be demonstrated how the software will generate probable future economic benefits
• Adequate technical, financial and other resources to complete the development and to use or sell
the software are available, and
• The expenditure attributable to the software during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software include employee costs and an
appropriate portion of relevant overheads.
Capitalised development costs are recorded as intangible assets and amortised from the point at which the
asset is ready for use.
Loans payable
Loans payable are initially recognised at fair value, net of any transaction costs. Loans payable are
subsequently stated at amortised cost using the effective interest method, where any difference between
the net proceeds and redemption value is recognised in profit or loss over the period of the borrowing.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement
of the liability for at least 12 months after Balance Sheet date. All borrowing costs are expensed.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised
at the present value of the lease payments to be made over the term of the lease, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily determined, the group’s incremental
borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable
lease payments that depend on an index or a rate, amounts expected to be paid under residual value
guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to
occur, and any anticipated termination penalties. The variable lease payments that do not depend on an
index or rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts
are remeasured if there is a change in the following: future lease payments arising from a change in an index
or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties.
When a lease liability is remeasured, an adjustment is made to the corresponding right-of-use asset, or to
profit or loss if the carrying amount of the right-of-use assets is fully written down.
Finance costs
Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are
expenses in the period in which they are incurred.
Provisions
Provisions for legal claims and make good obligations are recognised when the group has a present legal or
constructive obligation as a result of past events, it is probable that an outflow of resources will be required
to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future
operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement
is determined by considering the class of obligations as a whole. A provision is recognised even if the
likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of management’s best estimate of the expenditure required to
settle the present obligation at the end of the reporting period. The discount rate used to determine the
present value is a pre-tax rate that reflects current market assessments of the time value of money and the
risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest
expense.
Employee benefits
Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are
expected to be settled wholly within 12 months after the end of the period in which the employees render
the related service are recognised in respect of employees’ services up to the end of the reporting period
and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are
presented as current employee benefit obligations in the balance sheet.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an
unconditional right to defer settlement for at least twelve months after the reporting period, regardless of
when the actual settlement is expected to occur.
Bonus plans
The group recognises a liability and an expense for bonuses based on a formula that takes into consideration
key performance criteria. The group recognises a payable where contractually obliged or where there is a
past practice that has created a constructive obligation.
Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or
when an employee accepts voluntary redundancy in exchange for these benefits. The group recognises
termination benefits at the earlier of the following dates: (a) when the group can no longer withdraw the
offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope
of AASB 137 and involves the payment of terminations benefits. In the case of an offer made to encourage
voluntary redundancy, the termination benefits are measured based on the number of employees expected
to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are
discounted to present value.
Fair value is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming they act in their economic best interests. For non-financial assets, the fair value
measurement is based on its highest and best use. Valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to measure fair value, are used, maximizing the use
of relevant observable inputs and minimizing the use of unobservable inputs.
Assets and liabilities at fair value are classified into three levels, using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. Classifications are reviewed at each reporting
date and transfers between levels are determined based on a reassessment of the lowest level of input that
is significant to the fair value measurement.
For recurring and non-recurring fair value measurements, external valuers may be used when internal
expertise is either not available or when the valuation is deemed to be significant. External valuers are
selected based on market knowledge and reputation. Where there is a significant change in fair value of an
asset or liability from one period to another, an analysis is undertaken, which includes a verification of the
major inputs applied in the latest valuation and a comparison, where applicable, with external sources of
data.
Contributed equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the
Company.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount
of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables
in the statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or
financing activities which are recoverable from, or payable to the tax authority, are presented as operating
cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the
tax authority.
Rounding of amounts
The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’
of amounts in the financial statements. Amounts in the financial statements have been rounded off in
accordance with the Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.
Comparative Amendments
Some account classifications have changed in the current year and in order to improve the accuracy of
presentation, comparative figures have also been reclassified for consistency.
The preparation of the financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts in the financial statements. Management continually
evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and
expenses. Management bases its judgements, estimates and assumptions on historical experience and on
other various factors, including expectations of future events which management believes to be reasonable
under the circumstances. The resulting accounting judgements and estimates will seldom equal the related
actual results. The judgements, estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
There were significant trading disruptions between April and May 2020, however Government stimulus
(JobKeeper) was obtained and trading has returned to pre-pandemic levels. The board continues to
actively monitor the situation.
Business combinations
The acquisition of businesses requires the identification of net assets acquired, including any identifiable
intangible assets, and an assessment of their fair value. Judgement is required in determining whether
intangible assets are identifiable in the acquisition of dental practices. No intangible assets are identifiable
as there are no such assets that are either separable from the business or arise from contractual or other
legal rights.
Management estimates the fair value of the tangible assets acquired. The group uses its judgement to select
a variety of methods and make assumptions based mainly on market conditions existing at the time of the
business combination.
Goodwill
The group tests annually, or more frequently if events or changes in circumstances indicate impairment,
whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.
The recoverable amounts of cash-generating units have been determined based on value-in-use calculations.
These calculations require the use of assumptions, including estimated discount rates based on the current
cost of capital, and growth rates of the estimated future cash flows. Refer to note 19 for further information.
Investment property
The group measures investment property at fair value through profit or loss. Judgement was involved in the
determination of the fair value attributed to the portion of 361 Flinders Street, Townsville which related to
investment property as opposed to the owner occupied portion. Management used rental returns and the
original premises acquisition cost as inputs in allocating the fair value.
Lease term
The lease term is a significant component in the measurement of both the right-of-use asset and lease
liability. Judgement is exercised in determining whether there is reasonable certainty that an option to
extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will
not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease
term, all facts and circumstances that create an economical incentive to exercise an extension option, or not
to exercise a termination option, are considered at the lease commencement date. Factors considered may
include the importance of the asset to the group’s operations; comparison of terms and conditions to
prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements;
and the costs and disruption to replace the asset. The group reassesses whether it is reasonably certain to
exercise an extension option, or not exercise a termination option, if there is a significant event or significant
change in circumstances.
Each reporting segment derives revenue from dental services of $37,979,000 (2019: $39,180,000) within a
particular geographic area. The operating segments are aggregated into the one reportable segment as the
long term financial performance and economic characteristics of the operating segments are similar.
The financial results from this reportable segment are equivalent to the financial statements of the group as
a whole.
Other revenue
Interest 455 358
Consulting revenue 320 600
De-recognition of contingent consideration 550 -
Other revenue 498 175
1,823 1,133
Note 7. Expenses
Amortisation
Software 119 213
Intellectual property 271 84
Future maintainable revenue stream 86 307
Total amortisation 476 604
Total depreciation and amortisation 5,507 2,268
Finance costs
Interest and finance charges paid/payable on borrowings 607 229
Interest and finance charges paid/payable on lease liabilities 277 -
Total finance costs 884 229
Tax at the Australian tax rate of 27.5% (2019: 30%) 2,691 3,236
Tax effect of amounts which are not deductible (taxable) in calculating taxable
income:
Entertainment 4 4
Other - (8)
Non assessable income
Other expenses (19) (217)
2,676 3,015
Current tax
The following reflects the income and share data used in the basic and diluted earnings per share
computations:
2020 2019
$’000 $’000
Net profit attributable to ordinary equity holders 7,145 7,772
Shares Shares
Weighted number of ordinary shares for basic earnings per share
Number of shares 23,678,384 23,678,384
Cents Cents
Earnings per share 30.2 32.8
Diluted earnings per share 30.2 32.8
Interim dividend for the half year ended 31 December 2019 of 13.25 cents
(2018: 12.50 cents) per ordinary share paid on 27 March 2020 fully franked based
on a tax rate of 27.5% 3,137 2,960
6,097 5,801
Since the end of the financial year, the Directors declared, for the year ended 30 June 2020, a final
fully franked ordinary share dividend of 12.5 cents ($2,959,798) which is payable on 11 September 2020.
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted
for:
• franking credits that will arise from the payment of the amount of the provision for income tax at
the reporting date;
• franking debits that will arise from the payment of dividends recognised as a liability at the reporting
date; and
• franking credits that will arise from the receipt of dividends recognised as receivables at the reporting
date.
The impact on the franking account of the dividend recommended by the Directors since the end of the
reporting period, but not recognised as a liability at the reporting date, will be a reduction in the franking
account of $1,123,000 (2019: $1,268,000).
Cash on hand 9 9
Cash at bank 6,672 625
6,681 634
2,197 1,839
Current assets
Prepayments 339 301
Other current assets 1,422 691
Interest receivable 31 41
1,792 1,033
Non-current
Share loan principal (a) 2,001 1,751
Share loan interest 116 43
Other loans receivable 434 619
Loans receivable (b) 3,000 1,125
5,551 3,538
a) Ordinary share loans were made pursuant to a company loan funded program to incentivise consultants,
contractors and executive management. Shares are held in voluntary escrow. The voluntary escrow is
progressively released over a six year period. The loans are full recourse and repayable 13 months after the
company makes a call on the borrowers. The loans are secured by lien over the shares acquired from
proceeds of the share loan. In the event the borrowers sell any shares, a proportionate percentage of the
outstanding loan is required to be repaid. Interest on loans is charged on a commercial basis, varying
from 4.5% to 5.5%.
b) Redeemable preference shares were acquired during the period in an unlisted public company. Terms of
fixed interest repayments range from 33 months to 35 months, with rates of return varying from 11% to 12%.
No voting rights are attached to the shares held. Management intend to hold the investments for cash flow
purposes and not share trading purposes.
Current
Listed ordinary shares – designated at fair value through profit or loss 259 -
Non-current
Listed ordinary shares – designated at fair value through profit or loss - 208
259 208
Reconciliation
Opening fair value 208 208
Disposals (22) -
Revaluation increments 73 -
1,563 1,429
9,898 10,529
12,767 13,264
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous
financial year are set out below:
Land and Plant and Leasehold
Consolidated buildings equipment improvements Total
$’000 $’000 $’000 $’000
Right-of-use assets
Right-of-use assets breakdown as follows, by type of underlying asset:
30 June 2020 30 June 2019
$’000 $’000
Offices 781 -
Less: Accumulated Depreciation (260) -
521
Total 8,447 -
Dental
practices Offices Total
$’000 $’000 $’000
As of 1 July 2019 10,247 781 11,028
Additions 323 - 323
Disposals (37) - (37)
Depreciation (2,607) (260) (2,867)
As of 30 June 2020 7,926 521 8,447
Lease liabilities
Lease liabilities breakdown as follows:
30 June 2020 1 July 2019
$’000 $’000
Dental
practices Offices Total
$’000 $’000 $’000
As of 1 July 2019 10,247 781 11,028
Additions 323 - 323
Disposals (37) - (37)
Interest expense 258 19 277
Lease repayments (2,349) (131) (2,480)
Rent concessions (98) (131) (229)
The expense relating to payments not included in the measurement of the lease liability is as follows:
30 June 2020
$’000
1,625 1,625
Refer to note 2 for the group’s accounting policy for investment property. Additional information regarding
the investment property is noted in note 3 and note 34 of the financial statements.
34,308 33,482
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year
are set out below:
Future
maintainable
Consolidated Intellectual revenue
Software* Goodwill property* stream* Total
$’000 $’000 $’000 $’000 $’000
2020 2019
$’000 $’000
31,638 30,357
The recoverable amount of goodwill is based on value-in-use calculations which use cash flow projections
based on financial budgets approved by management covering a five year period. Future cash flows are
projected over a five year period and use an implied annual growth rate of 3% (2019: 5.3%) and are
discounted using the group’s weighted average cost of capital of 8.3% (2019: 11.7%). Cash flows beyond the
five year period are extrapolated using an estimated growth rate of 2% (2019: 2%) which does not exceed
the long-term average growth rate for the industry in which each CGU operates. Impairment testing was
conducted as at 30 April 2020.
The coronavirus pandemic (COVID-19), has had an adverse economic impact within Australia and globally,
however it is not possible to accurately determine the future nature, extent or duration of the impact on the
group, material or otherwise, at the date of signing the financial statements. The directors of the group have
considered the potential impacts of COVID-19 and do not believe that, based on the information currently
available, it has a significant impact in the assessment of impairment at balance date.
(360) (541)
Current
Trade payables 2,343 1,720
Sundry payables and accruals 1,293 1,449
Unearned revenue 429 429
Other payables 235 205
4,300 3,803
Non-current
Other payables 401 458
Current
Provision for employee benefits 838 630
Non-current
Make good provision 325 310
Provision for employee benefits 119 117
444 427
Make good provision
Balance at 1 July 310 290
Charged/ (credited) to income statement 15 20
Non-current
Contingent settlement payable 260 1,591
Non-current
Loans payable * 15,000 9,200
* The loan payable is a multi-option loan facility agreement with the Commonwealth Bank of Australia.
The loan facility was settled on 2 August 2019 with transfer of securities occurring on this date. The details
of the loan facility included:
• Total loan facility is for $25 million and a $25 million accordion facility
• Interest terms vary according to the net leverage ratio, with the current rate at 2.07%
• Security for the loan facility consists of first ranking general security interest over all assets and
undertakings of 1300SMILES Ltd and 1300SMILES (BOH Dental) Pty Ltd, and a cross guarantee and
indemnity between 1300SMILES Ltd and 1300SMILES (BOH Dental) Pty Ltd
• Debt covenants include:
o Net debt leverage ratio not greater than 2.75x
o Fixed interest charge cover ratio must not fall below 1.80x
• The termination date of the loan facility is 2 August 2022
For the 12 months ended 30 June 2020, the net leverage ratio and the fixed cover ratio were 0.85x and 4.6x
respectively.
Consolidated
2020 2019 2020 2019
Shares Shares $’000 $’000
At 30 June 2020 333,324 (2019: 333,324) shares were held under escrow.
Ordinary shares
Ordinary shares entitle the holder to participate in dividends, and to share in the proceeds of winding up the
company in proportion to the number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to
one vote, and upon a poll each share is entitled to one vote.
Ordinary shares have no par value and the company does not have a limited amount of authorised capital.
The cash to equity ratios at 30 June 2020 and 30 June 2019 were as follows:
Consolidated
2020 2019
$’000 $’000
Cash and cash equivalents
Net cash 6,681 634
Total equity
Total capital 41,133 40,085
The Board of Directors have overall responsibility for the establishment and oversight of the risk
management framework. The Managing Director is responsible for developing and monitoring risk
management policy, and reports regularly to the Board of Directors on issues and compliance.
Risk management policy is to identify and analyse the risks faced by the group, to set limits and controls, and
to monitor risks and adherence to limits. Risk management policy and systems are reviewed regularly to
reflect changes in market conditions and group activities. The group aims to develop a disciplined and
constructive control environment in which all employees understand their roles and obligations.
Market risk
Foreign currency risk: The group does not undertake any significant transactions denominated in foreign
currency and is not exposed to any significant foreign currency risk through foreign exchange rate
fluctuations.
Price risk
The group is not exposed to any significant price risk.
Fixed interest
Share loans 5.03% 2,117 5.10% 1,795
Other loans receivable 5.00% 219 5.00% 299
Loans receivable 11.67% 3,000 12.71% 2,625
A movement in interest rates of 1.0% (2019: 1.0%) would have an (adverse)/favourable effect on profit
before tax of ($29,830) (2019: ($38,490)) per annum. The percentage change is based on the expected
volatility of interest rates using market data and analysts’ forecasts.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial
loss to the group. The entity’s exposure to risk is minimised due to the majority of clients paying for their
services up front. The group monitors and follows-up its accounts receivable to ensure collections are being
made promptly in accordance with contractual terms and conditions and actively pursues amounts past due.
Where applicable, an allowance for impairment is made, that represents the estimate of incurred losses in
respect to trade and other receivables.
The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying
amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial
position and notes to the financial statements. The group does not hold any collateral.
Credit risk is continually reviewed and managed to reduce the incidence of material losses being incurred by
the non-receipt of monies due. Management considers the credit and default risks attached to the share
loans and loans receivable to be minimal.
With respect to share loans the group may at any time, by written notice, call on the borrower to repay all
or part of the outstanding amount within 13 months after the company makes a call. Where applicable, if an
employee ceases to be employed by the company, the money owing will become payable on the date which
is three (3) months after the date on which the employment ceases, if the employment ceases after the
probationary period. A lien will remain effective after escrow has been removed on the proportionate
percentage of the total shares subject to the loan outstanding. $1,451,000 (2019: $1,399,000) of the share
loans are receivable from two parties comprising external consultants of the group.
The group limits its cash investment risk exposure on cash investments by investing in a variety of Australian
deposit taking institutions.
Liquidity risk
Vigilant liquidity risk management requires the group to maintain sufficient liquid assets (mainly cash and
cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due
and payable.
The group manages liquidity risk by continuously monitoring actual and forecast cash flows and matching the
maturity profiles of financial assets and liabilities.
Further analysis of the group’s current cash to equity ratio is disclosed in note 25 of these accounts.
Weighted
Average Between Between
Consolidated interest 1 year or 1 and 2 2 and 5 Over
rate less years years 5 years Total
% $’000 $’000 $’000 $’000 $’000
Balance at 30 June 2019
Non-derivatives
Non-interest bearing
Trade and other payables - 1,720 - - - 1,720
Sundry payables
- 1,449 - - - 1,449
and accruals
Other liabilities - 634 1,331 260 - 2,225
Other liabilities - 205 143 143 172 663
Interest bearing
Loans payable* 1.52% - - 9,200 - 9,200
Total non-derivatives 4,008 1,474 9,603 172 15,257
* as described in note 24, the loan facility has a termination date of 2 August 2022
The cash flows in the maturity analysis above are not expected to occur significantly earlier than disclosed.
Fair value
The carrying amounts of trade receivables and payables are assumed to approximate their fair values due to
their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by
discounting the future contractual cash flows at the current market interest rate that is available to the group
for similar financial instruments. The fair value of current borrowings and contingent consideration
approximates the carrying amount.
Compensation
Consolidated
2020 2019
$’000 $’000
398 340
Detailed remuneration disclosures are provided in the remuneration report on pages 12 to 18.
Shareholdings
The number of shares in the parent entity held during the financial year by each Director and other members
of key management personnel of the group, including their personally related parties, is set out in the
remuneration report.
During the financial year the following fees were paid or payable for services provided by the auditor of the
company, and their related practices:
Consolidated
2020 2019
$’000 $’000
(i) Audit and other assurance services
Audit and review of financial statements – PKF Brisbane Audit 94 81
The group had total facilities of $1,153,000 (2019: $612,000) with $991,000 used at reporting date
(2019: $612,000) in respect of property guarantees.
- 14,019
In the current year the group has applied AASB 16 Leases, and therefore amounts related to this lease are
now presented in Note 17 Right of use assets and Lease liabilities.
Other commitments
The group did not have any other contractual commitments for the acquisition of property, plant or
equipment as at 30 June 2020 and 30 June 2019.
Parent entity
1300SMILES Limited is the parent entity.
The ultimate controlling entity is Dr Daryl Holmes who has a 62.13% (2019: 62.13%) interest in
1300SMILES Limited.
Subsidiaries
Interests in subsidiaries are set out in note 35.
Included in lease liability is $996,851 committed to Golden Arch Pty Ltd over a period of 5 years, and $426,535
committed to Three Island Pty Ltd over a period of 6 years, and $609,156 committed to Ashbourne Park Pty
Limited over a period of 5 years.
Consulting revenue of $320,000 consists of services provided to related parties of the Group.
The group acquired two dental practices in Gatton and Laidley (Queensland) on 23 December 2019.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Gatton and
Laidley Total
$’000 $’000
Purchase consideration:
Cash paid 1,886 1886
Cash payable / deferred
consideration 49 49
Contingent consideration - -
Gatton and
Laidley Total
$’000 $’000
No separate identifiable intangible assets were identified in the business combination. At the end of the
current year there have been no adjustments to this balance of goodwill.
Acquisition-related costs
During the current year there are $12,605 (2019: $30,000) acquisition-related costs that are included in
operating expenses in profit or loss and in operating cash flows in the statement of cash flows.
This section explains the judgements and estimates made in determining the fair values of the financial
instruments and investment property that are recognised and measured at fair value in the financial
statements. To provide an indication about the reliability of the inputs used in determining fair value, the
group has classified its financial instruments into the three levels prescribed under the accounting standards.
AASB13 requires disclosure of fair value measurements by level of the following fair value measurement
hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly or indirectly;
Level 3: Inputs for the asset or liabilities that are not based on observable market data (unobservable inputs).
The following table presents the group’s financial assets, investment property and financial liabilities
measured and recognised at fair value at 30 June 2020 and 30 June 2019 on a recurring basis.
Consolidated
Level 1 Level 1
2020 2019
Note $’000 $’000
Financial assets
Financial assets – investments 15 259 208
Consolidated
Level 2 Level 2
2020 2019
Note $’000 $’000
Other assets
Investment property 18 1,625 1,625
Consolidated
Level 3 Level 3
2020 2019
Note $’000 $’000
Other liabilities
Contingent consideration payable 23 1,575 2,225
There were no transfers between levels 1, 2 or 3 for recurring fair value measurements during the year.
The group did not measure any financial assets or financial liabilities on a non-recurring basis as at
30 June 2020.
Financial assets – investments are a level 1 financial instrument, which arose from the purchase of shares of
two similar companies in the dental industry.
The investment property is a level 2 fair value asset which arose from the initial acquisition and revaluation
of 361 Flinders Street, Townsville. Judgement was involved in the determination of the fair value attributed
to the portion of 361 Flinders Street, Townsville which related to investment property as opposed to the
owner occupied portion. Management used rental returns and the original premises acquisition cost as
evidence in allocating the fair value.
The contingent consideration liability is a level 3 financial instrument, which arose from the acquisition of
the orthodontic dental practices in New South Wales and more recently the acquisition of two dental
practices in South East Queensland. Expected cash flows are estimated on the terms of the sale contract (see
note 33) and the group’s knowledge of the business and how the current economic environment is likely to
impact it. The fair value of contingent consideration payable is analysed at the end of each reporting period.
The consolidated financial statements incorporate the assets, liabilities and results of the following
subsidiaries in accordance with the accounting policy described in note 2:
Equity holding
2020 2019
Name of entity Country of incorporation % %
(a) Reconciliation of profit after income tax to net cash from operating activities
Consolidated
2020 2019
$’000 $’000
Profit after income tax expense for the year 7,145 7,772
Adjustments for:
Gain on sale – fixed assets (897) (400)
Fair value gain – investment property - (1,170)
Business development costs 115 -
Fair value gain on financial assets (73) -
Interest on lease liabilities 277 -
Rent concessions (229) -
Depreciation and amortisation 5,507 2,268
Consolidated
2020 2019
$’000 $’000
Net debt
Cash and cash equivalents 6,681 634
Liquid investments 259 208
Leases – repayable within one year (2,865) -
Leases – repayable after one year (6,017) -
Borrowings – repayable within one year - -
Borrowings – repayable after one year (15,000) (9,200)
(16,942) (8,358)
Net debt as at 30 June 2020 6,681 259 - (15,000) (2,865) (6,017) (16,942)
A fully franked final dividend of 12.5 cents per share has been declared and is payable on 11 September 2020.
Apart from the matters mentioned above, no other matter or circumstance has arisen since 30 June 2020
that has significantly affected, or may significantly affect the group's operations, the results of those
operations, or the group's state of affairs in future financial years.
a) the financial statements and notes set out on pages 24 to 65 are in accordance with the
Corporations Act 2001, including:
i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements; and
ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2020 and of its
performance for the financial year ended on that date; and
b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they
become due and payable.
Note 2 confirms that the financial statements also comply with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
The Directors have been given the declaration by the Managing Director and finance team leader as required
by section 295A of the Corporations Act 2001.
Townsville
11 August 2020
Opinion
We have audited the accompanying financial report of 1300SMILES Limited (the company), which
comprises the consolidated balance sheet as at 30 June 2020, the consolidated statement of
comprehensive income, the consolidated statement of changes in equity and the consolidated statement of
cash flows for the year then ended, notes comprising a summary of significant accounting policies and other
explanatory information, and the directors’ declaration of the company and the consolidated entity
comprising the company and the entities it controlled at the year’s end or from time to time during the
financial year.
In our opinion, the financial report of 1300SMILES Limited is in accordance with the Corporations Act 2001,
including:
i) Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2020
and of its performance for the year ended on that date; and
ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the consolidated entity in accordance with the auditor independence requirements of
the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence
Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled
our other ethical responsibilities in accordance with the Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report of the current period. These matters was addressed in the context of our audit of
the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed these matters
is provided in that context.
Why significant How our audit addressed the key audit matter
As at 30 June 2020 the carrying value of goodwill was In assessing this key audit matter, we involved senior
$31,638,480 (2019: $30,357,000), as disclosed in Note audit team members who understand the dental services
industry.
19.
Our audit procedures included, amongst others:
The consolidated entity’s accounting policy in respect
of goodwill is outlined in Note 2.
• evaluating management’s methodology for
determining the carrying amount of intangible
Goodwill is recognised on the acquisition of practices.
assets by comparing the value in use model
The carrying amount of intangible assets - goodwill is a with generally accepted valuation methodology
key audit matter due to: and accounting standard requirements;
• conducting sensitivity analysis on key
• the significance of the balance (being 43% of assumptions such as the weighted average
total assets); and cost of capital (WACC) and growth rates, within
• the level of judgement applied in evaluating reasonable foreseeable ranges, in which we
management’s assessment of impairment. found that the value in use remained in excess
of the carrying value of net assets of each
As outlined in Notes 3 and 19, management assessed cash-generating unit (‘CGU’);
the carrying amount of goodwill through impairment • challenging the key assumptions used in
testing utilising a value in use model in which management’s value in use model by:
significant judgements are applied in determining key - assessing growth rates set by management in
assumptions. These assumptions include the comparison to historical results
assessment of future earnings before interest and tax - evaluating the WACC rate set by management
growth expected to be achieved, as well as the in comparison to market and industry
weighted average cost of capital. The judgements information available
made in determining the underlying assumptions in the - assessing the impact of the COVID-19
model have a significant impact on the carrying amount pandemic on all key assumptions
of goodwill, and accordingly the amount of any • assessing the appropriateness of changes
impairment charge, to be recorded in the current made during the year by management of key
financial year. assumptions being a reduction in growth rates
and the WACC; and
• assessing the appropriateness of the related
disclosures in Note 19.
2. Business combinations – including allocation of goodwill
Why significant How our audit addressed the key audit matter
During the year, the group acquired the following dental In assessing this key audit matter our work included, but
practices: was not limited to, the following procedures:
Our opinion on the Financial Report does not cover the Other Information and, accordingly, the auditor does
not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of
the Remuneration Report.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or
our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information in
the Financial Report and based on the work we have performed on the Other Information that we obtained
prior the date of this Auditor’s Report we have nothing to report.
Directors’ Responsibilities for the Financial Report
The Directors of the company are responsible for the preparation of the financial report that gives a true and
fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the Directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the Directors are responsible for assessing the consolidated entity’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to liquidate the consolidated entity or to
cease operations, or have no realistic alternative but to do so.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement
and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial report, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the consolidated entity’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Directors.
• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the consolidated entity to cease to
continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including the disclosures,
and whether the financial report represents the underlying transactions and events in a manner that
achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the consolidated entity to express an opinion on the group financial report. We are
responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated with the Directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.
Opinion
We have audited the Remuneration Report included in the directors’ report for the year ended 30 June
2020.
In our opinion, the Remuneration Report of 1300SMILES Limited for the year ended 30 June 2020, complies
with section 300A of the Corporations Act 2001.
Responsibilities
The Directors of the company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing
Standards.
SHAUN LINDEMANN
PARTNER
11 AUGUST 2020
BRISBANE, AUSTRALIA
Shareholder information
30 June 2020
The shareholder information set out below was applicable as at 30 June 2020.
1 to 1,000 867
1,001 to 5,000 494
5,001 to 10,000 117
10,001 to 50,000 80
50,001 to 100,000 4
100,001 and over 11
1,573
Ordinary shares
Number held % of total shares
issued
Dr Daryl Holmes 14,116,837 59.62%
JP Morgan Nominees Australia Ltd 1,762,041 7.44%
Evelin Investments Pty Ltd 980,000 4.14%
Ashbourne Park Pty Ltd 550,702 2.33%
Dr Russell Kay Hancock 500,000 2.11%
Citicorp Nominees Pty Ltd 454,343 1.92%
Upper Avalon Pty Ltd 294,000 1.24%
Mr Kevin John Holmes + Mrs Janita Dawn Holmes 175,633 0.74%
HSBC Custody Nominees 170,688 0.72%
BNP Paribas Nominees Pty Ltd 164,764 0.70%
Mr Kent Gush 101,364 0.43%
Gang-Gang Pty Ltd 78,875 0.33%
Mr Bradley John Holmes + Mrs Seiko Holmes 71,932 0.30%
Mr Nicholas Mole 60,000 0.25%
Mr David Solomons 57,306 0.24%
Nigel’s Investments Pty Ltd 56,435 0.24%
ANCAM Pty Ltd 50,000 0.21%
Mr Keith Sorrentino 45,390 0.19%
Easy Investing Pty Ltd 45,000 0.19%
Tomman (NQ) Pty Ltd 45,000 0.19%
19,780,310 83.54%
Substantial holders
*Dr Daryl Holmes shareholding is held in his personal name and in the name of other related parties
Voting rights
The voting rights attached to ordinary shares are set out below:
Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon
a poll each share shall have one vote.
Restricted securities
Directors
Robert Jones, Chairman
Dr Daryl Holmes, Managing Director
Jason Smith, Non-Executive Director
Evonne Collier, Non-Executive Director (resigned 6 April 2020)
Company secretary
Patrick Wyatt
Auditor
PKF Brisbane Audit
Level 6, 10 Eagle Street
GPO Box 1568
Brisbane QLD 4000
Country of incorporation
Australia
Share register
Computershare Limited
117 Victoria Street
West End QLD 4001
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Legal advisers
Thomson Geer Lawyers Broadley Rees Hogan Wilson Ryan Grose Lawyers
Level 28 Waterfront Place 24/111 Eagle Street 51 Sturt Street
1 Eagle Street Brisbane QLD 4000 Townsville QLD 4810
Brisbane QLD 4000